Financial institutions lose billions of dollars annually to mortgage fraud. Mortgage and housing industry professionals, as well as homeowners and homebuyers, commit fraud when they lie on mortgage applications. Law enforcement at the federal and state levels and financial regulatory agencies handle mortgage fraud prevention, investigations and prosecution. The penalties for falsifying information to get a home loan ranges from fines to imprisonment due to the various crimes involved.

Mortgage Fraud Is A Federal Crime

The Federal Bureau of Investigations handles mortgage fraud cases. Mortgage fraud can get you a maximum penalty of 30 years in federal prison, up to $1,000,000 in fines, or a combination of these punishments, according to the FBI. Falsifying income, assets, debt, your identity, or the value of real estate to sway a mortgage lender's decision constitutes criminal activity. Applicants who lie on an application may be charged with one or more federal criminal statutes related to bank, wire and mail fraud; to falsifying names, addresses, social security numbers and identification documents; or to violating federal housing regulations, to name a few.

Two Types of Mortgage Fraud

The two primary forms of mortgage fraud include "fraud for profit" and "fraud for housing." These broad categories encompass a variety of activities, such as lies or omissions in the application or supporting documents. The motivation behind fraud-for-profit schemes is money. Perpetrators are often industry insiders, such as real estate agents, loan officers, appraisers, and escrow and title representatives. Fraud-for-housing usually involves homebuyers who want to finance real estate for personal use. Common fraud-for-housing schemes involve occupancy fraud, in which the applicant pretends the home will serve as a primary residence to get better loan terms, and straw buyers, who buy on behalf of an unqualified person.

Professional Penalties

Monetary and professional penalties apply when fraud cases involve industry insiders. In addition to paying restitution, industry professionals – from brokers to notary publics – lose their licenses. Compensation entails monetary reimbursement to the injured party, or lender, in addition to any government-imposed fines. Monetary fines are especially high for real estate insiders. A single federal mortgage fraud conviction can cost a professional as much as $1 million in fines. At the state level, penalties range from a few thousand dollars for misdemeanor conviction to $100,000 and up for felony convictions.

Probation Possibility

A mortgage fraud conviction may carry probation in addition to restitution, fines and imprisonment. It may also be imposed separately from these other penalties. Probation terms are at least one year long but often last longer. Probation involves regular check-in with a probation officer, meeting specific court-mandated requirements, random drug tests, and steering clear of all criminal activity.

About the Author

K.C. Hernandez has covered real estate topics since 2009. She is a licensed real estate salesperson in San Diego since 2004. Her articles have appeared in community newspapers but her work is mostly online. Hernandez has a Bachelor of Arts in English from UCLA and works as the real estate expert for Demand Media Studios.